FINANCIAL PLANNING: AN INTRODUCTION

Personal Finance, 7th Canadian Edition, 7e Jack Kapoor, Les Dlabay, Robert Hughes, Arshad Ahmad

(Solutions Manual All Chapter)

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Copyright © 2018 McGraw-Hill Education Ltd. All Rights Reserved.Instructor’s Manual for Kapoor et al. Personal Finance 7CE.1

FINANCIAL PLANNING: AN INTRODUCTION

CHAPTER OVERVIEW

This chapter provides the foundation for Personal Finance and the study of financial planning. The chapter starts with a discussion of an overview of the financial planning process. This is followed by coverage of the person’s life situation, personal values, and economic factors that make up the financial planning environment. Next, the opportunity costs, or trade-offs, of decisions are considered in relation to personal and financial resources. Subsequently, the main components of financial planning (obtaining, planning, saving, borrowing, spending, managing risk, investing, and retirement and estate planning) are discussed. Finally, strategies for creating and using a financial plan are introduced.

LEARNING OBJECTIVES CHAPTER SUMMARY

After studying this chapter, students will be able to:

Obj. 1 Analyze the process for making personal financial decisions.

Personal financial planning involves the following process: (1)

determine your current financial situation; (2) develop financial goals; (3) identify alternative courses of action; (4) evaluate alternatives; (5) create and implement a financial action plan; and (6) re-evaluate and revise the financial plan.Obj. 2 Develop personal financial goals.Financial goals should (1) be realistic; (2) be stated in specific, measurable terms; (3) have a time frame; (4) indicate the type of action to be taken.Obj. 3 Assess personal and economic factors that influence personal financial planning.

Financial decisions are affected by a person’s life situation (income, age, household size, health), personal values, and economic factors (prices, interest rates, and employment opportunities).Obj. 4 Determine personal and financial opportunity costs associated with personal financial decisions.Financial opportunity costs are based on the time value of money.Future value and present value calculations enable you to measure the increased value (or lost interest) that results from a saving, investing, borrowing, or purchasing decision.Obj. 5 Identify strategies for achieving personal financial goals for different life situation.Successful financial planning requires specific goals combined with spending, savings, investing, and borrowing strategies based on your personal situation and various social and economic factors.

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Copyright © 2018 McGraw-Hill Education Ltd. All Rights Reserved.Instructor’s Manual for Kapoor et al. Personal Finance 7CE.

INTRODUCTORY ACTIVITIES

• Ask students to comment on the opening case for the chapter.• Point out the learning objectives in an effort to highlight the key points in the chapter.• Ask students to provide examples of social and economic factors that have increased the importance of personal financial planning today.• Have students answer these three questions as individuals or in small discussion groups:

• What do you currently know about personal financial planning?
• What questions do you need answers for about personal finance?
• How and where might you obtain answers to the questions you have about personal finance?

CHAPTER 1 OUTLINE

• The Financial Planning Process

Step 1: Determine Your Current Financial Situation

Step 2: Develop Financial Goals

Step 3: Identify Alternative Courses of Action

Step 4: Evaluate Alternatives

Step 5: Create and Implement a Financial Action Plan

Step 6: Re-evaluate and Revise Your Plan

II. Developing Personal Financial Goals

• Factors that Influence Your Financial Goals
• Life Situation
• Goal-Setting Guidelines

III. The Influence of Economic Factors

• Market Forces
• Financial Institutions
• Global Influences
• Economic Conditions

IV. Time Value of Money

• Interest Calculations
• Future Value
• Present Value
• Achieving Financial Goals
• Components of Personal Financial Planning
• Developing a Flexible Financial Plan
• Implementing Your Financial Plan

VI. Appendix 1A: Financial Planners and Other Financial Planning Information Sources 3 / 4

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Copyright © 2018 McGraw-Hill Education Ltd. All Rights Reserved.Instructor’s Manual for Kapoor et al. Personal Finance 7CE.VII. Appendix 1B: The Time Value of Money: Future Value and Present Value Computations.

CHAPTER 1 LECTURE OUTLINE Instructional Suggestions

THE FINANCIAL PLANNING PROCESS

• Personal financial planning is the process of managing your money to achieve personal economic satisfaction.Step 1. Determine Your Current Financial Situation

• Determine your current financial situation with regard to income, savings, living expenses, and debts.Step 2. Develop Financial Goals • Analyze your financial values and goals to set a course for action.

• Discussion Question: Why

do some decisions require more time and effort than others?

Step 3. Identify Alternative Courses of Action • Various alternatives associated with financial

decision making are usually based on deciding to:

 Continue the same course of action; for example, you may determine that the amount saved each month is still appropriate. Expand the current situation; you may choose to save a greater amount each month. Change the current situation; you may decide to buy Canadian savings bonds instead of using a regular savings account. Take a new course of action; you conclude to use your monthly saving budget to pay off credit card debts.• Creativity in decision making is vital to making effective choices. The more alternatives that are considered, the more likely a person or household will make wise financial choices.

• Class Exercise: Select a

situation (such as obtaining funds to start a business or getting work-related experience without a job) and have students create a list of alternatives for this problem.Step 4. Evaluate Alternatives • Every decision closes off alternatives. The opportunity cost is what a person gives up by making a choice. This cost, commonly referred to as the trade-off of a decision, sometimes cannot always be measured in dollars.• Decision making will be an ongoing part of your personal and financial existence. Thus, you will need to consider the lost opportunities that result from your decisions.

• Text Highlight: Exhibit 1-

• provides information on four

types of risks faced in many financial decisions.

• Text Reference: The

Appendix provides expanded discussion of financial planning information sources and using a financial planner.

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